This first “event” is a hypothetical budget of a young couple. It may help stir your own thoughts about future costs and ways to “cut back” when, for instance, a 1st child arrives. Study the inputs to see a “typical” budget life. It’s interesting that a human life can be summed up in the 15 questions listed below. Detailed questions were answered and estimates of typical household costs were used to calculate savings growth over the next 4 years.
Budgeting Event No. 1
A young 20-something about 3 years out of college, with a working wife but no kids. Here is their possible scenario over the next 4 years (assuming the stork doesn’t visit them soon). These are the inputs selected for this young couple:
1. YOUR TRADITIONAL MONTHLY PENSION CHECK = 0
2. 401K(S) PRESENT BALANCES = 20000
3. MONTHLY INSURANCE PAYMENTS = 100
4. TOTAL “NET MONTHLY” SPOUSE INCOME + YOUR WORK INCOME + ANNUITY + MUTUAL FUND INCOME + OTHERS JOB MONTHLY NET INCOME? – Average next 4 years = 4000
5. “MONTHLY” HOUSE RELATED PAYMENTS (MORTGAGE/RENT/TAXES) = 1000
6. MONTHLY MEDICARE PART B? = 0
7. MONTHLY FOOD & PROPERTY MAINTENANCE = 500
8. MONTHLY UTILITIES = 225
9. MONTHLY CLOTHES = 200
10. MONTHLY ENTERTAINMENT & AUTO FUEL = 550
11. Monthly EMERGENCY FUND = 200
12. IRA VALUES = 5000
13. SAVINGS & CHECKING = 2000
14. BROKERAGE & OPTIONS ACCOUNT VALUE = 5000
15. “OTHER” YEARLY EXPENSE – AVERAGE NEXT 4 OR 5 YEARS (VACATION COST, ETC.?) = 2000
And the following shows the debt balance for each of the next 4 years, unless the above numbers change. The calculation these numbers came from assumes $75,000 in liquid savings as a proper “cushion” before saying you are at “break even” (in the black):
PRESENT “EXTRA SAVINGS” ACCOUNT BALANCE PROJECTION above a recommended $75,000 “cushion” – NEXT 4 YEARS = -$55,258, -$42,516, -$29,774, -$17,032.
Notice the debt decreasing by around $12,000 per year. When these numbers turn “BLACK” around the 6th year (assuming nothing changes), it just means this young couple has a $75,000 liquid “cushion” that will help with a house down payment or to start a family.
Calculations are done in an EXCEL spreadsheet that allows any person, of any age, to understand their household situation every 4 years or so, when they re-run their own numbers based on their existing household situation at that time. It can truly help in “budgeting your life”. This is a very valuable exercise that allows anyone to see how lifestyle incomes and costs affect future savings. The aim is to make intelligent adjustments, as needed, to reach a near term goal. Life is simpler when broken up into a series of shorter goals.